The Market Meltdown & The Question of Trust

Over the weekend, I ended up on San Francisco’s ritzy Fillmore Street. I stopped by to say hello to my dry cleaner and then to Ed Nahigian, a gentleman who has been taking care of my footwear since I moved to San Francisco. As with everything else, the conversation turned to the market meltdown and the pending auto-industry bailout. From our conversation emerged some common sense advice that’s applicable to business of all shapes and sizes.

Nahigian is one of the nation’s millions of small business owners and has been around longer than most Web 2.0 entrepreneurs. In other words, he knows what he is talking about. He was fuming over the idea of Detroit bailout. When I asked Ed, what was the secret of his success and his survival for nearly three decades, he was quick to point out: trust. As long as a customer trusts his work, (s)he is going to come back. It’s good advice that works, even in this interconnected world of ours. It is easy to find success. It is easy get users to trust your service. But it is hard to maintain that level of trust.

It is not just Detroit, for we have lost trust in the banking system, our financial stewards and to a large extent in the abilities of those who we elect to govern. Trust, or lack there off is why a bank as big as Citibank was staring down the abyss and had to go to the US government from help.

As someone who was always attracted to the American Way, it is easy enough for me to figure out that since World War II, the U.S. economic engine has worked on the basic tenet of planned obsolesce. The idea was actually very simple: Consumers would replace their goods with either beefier products or more stylish gear or gear with more features. They would do so because they would trust the quality of the merchandise coming from a company.

As a company management, it was your job to understand consumer’s desires and plan for the future. But somewhere along the line, a lot of companies forgot three basics of building a good business. These basics are looking at the future, earning customer trust, and managing the business well. Detroit gets an F for its efforts on those three counts, and hence are in trouble that they are in.

In our backyard, there are two computer makers that have done a good job of executing on those fronts — Apple and Hewlett-Packard. Apple and HP have done a good job of predicting their customer needs and built a product portfolio that has style, quality and (more importantly) taps into the primal urge of consumption. These two companies have held their own in a tough market and met their financial projections.

In comparison, Dell, which was at one time the champion of the PC business, last week reported a 3 percent decline in revenues and a 5 percent dip in net income. Dell gets 60 percent of its revenues from PCs, while HP gets about 33 percent of its sales from computers. PC sales are expected to slide drastically next year, according to some estimates. Dell’s predicament is no different than automakers who relied too much on trucks and gas-guzzling SUVs. It shows that no matter how big a company gets, it shouldn’t get arrogant in its success and forget who butters its bread.

Ed’s common sense advice is something all of us startup guys should adhere to.